Question

The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information." Accountants record every financial transaction the business engages in and summarizes this information into various reports and analyses. Accounting can be broken into financial and managerial accounting. Can you explain the differences between the two?

Answer 1

Solution :

The accounting is made for Management is called Management accounting which helps the mangers make decision. Management accounting is take information from both financial and cost accounting, financial accounting is used to analyse the financial position of the business

Major differences of Financial and management accounting given below:

1) Object

a) In financial accounting, various transactions are recorded to find out the business result (Profit/Loss) along with financial position of the business at the end of financial year by preparing Profit and loss account and balance sheet

b) Management accounting is essential for a business to provide the management with such information that helpful for them make policies and program for business and take appropriate time bound decision

2) Nature

a) Financial accounting deals with past data or historical data in simple term the transaction which are already happened is taken in financial accounting example : the financial statement start preparation after the year which it belongs to is over

b) Management accounting is deals with predicted data or projected data helps to make future decision ( Example budgets are kind of projected data ,

3) Principles

a) Financial accounting is prepared using certain rules and laws which are standards like GAAP Generally Accepted Accounting Principles or IFRS etc. a business need to strictly follow this.

b) No set of defined principle are followed in managerial accounting, the mangers can interpret or analyze such data in differently and take different decision in future. These analysis and decisions are varies manager to manager

4) Legal compulsion

a) Financial accounting is mandatory for many organisation by law

b) Managerial accounting is optional

5) Precision

a) In financial Accounting only financial figures are recorded with accuracy

b) In Managerial Accounting approximated figures are used

6) Reporting

a) Financial Accounts reports are published for the benefit of both internal and external stakeholder

b) Managerial accounting report is mainly used Internally